To The Moon

$Skyworks Solutions(SWKS)$ announced its Q1 FY25 results after the bell on Feb. 5, and two big moves sent the stock tumbling 24.2%.

While its Q1 results were solid, with profit metrics exceeding expectations, there was a huge change in guidance -- management announced that its largest customer ( $Apple(AAPL)$ ) would be choosing dual-sourcing for its future wireless RF suppliers, replacing its previous single-sourcing to replace the previous single-source (Skyworks) , and as a result expects a potential Mid to high teens YoY decline in sales for its largest business unit.

In addition, the company announced the replacement of its interim CEO with the appointment of interim CEOPhilip Brace from Inseego (INSG) as President and CEO, effective February 17th.

Investment Highlights

1. The general environment itself is facing headwinds with the decline in iPhone shipments.

   1. According to a report published by the three parties, Q4 iPhone shipments in China are down year-on-year, and Q1 guidance is also down;

   2. According to Ming-chi Kuo's report, Q4 iPhone 16 series shipments in the US market are also likely to decline;

   3. The impact on iPhone revenue is not significant, mainly due to "improved product mix", i.e., users are buying more iPhones with larger memory capacity, but from the perspective of shipment volume is indeed reduced, and the impact on upstream iPhone suppliers is even greater, with an expected seasonal decline in Q1 itself;

2. Single revenue source risk, Apple supplier changes.

   1. Apple's change in supply of key sockets for wireless RF from a single source to dual sources affects SWKS' revenue share;

   2. Revenue from Apple accounted for 69% of SWKS' total revenue in FY2024, so the change in its supplier has a large impact on SKWS;

   3. Revenues are expected to be impacted from Q3 of FY2025, while competition will also impact pricing, and lower shipments will increase marginal costs, a double whammy for margins;

3. An unavailable second curve and doubts about margin slippage from declining revenues.

   1. While there are opportunities to repurpose RF designs for Android and other consumer electronics markets, executives expressed only selective collaboration with Samsung and Google on high-performance RF, and primarily in non-cellular consumer devices (implying that the Android market is not more advanced at this time);

   2. Factory underutilization remains a drag on gross margin improvement, and efforts to control costs and improve efficiencies will be intensified;

   3. Inventory headwinds persist in the industrial and infrastructure sectors, and overcapacity exists in the automotive and IoT sectors.

Earnings and Market Feedback

• FY25 Q1 adjusted EPS of $1.60 (vs. Consensus $1.57) on overall revenues of $1.07 billion, down 11.1% year-over-year and essentially flat with Consensus. the company derives the majority of its revenues from AAPL (69% share)

• In terms of guidance, the company expects FY25 Q2 revenues to be in the range of $935 to $965 million, midpoint above Consensus' $941 million; adjusted EPS of $1.20 vs. $1.19 for Consensus.

• The market is -22% after hours, with continued downward pressure expected at the open.

• $Qorvo(QRVO)$ could be the other supplier, also $Broadcom(AVGO)$ $Qualcomm(QCOM)$